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National Chamber of Commerce Sri Lanka

Widening of tax bands welcome

Budget 2004 has made use of the important macro economic environment and the fiscal space created by the Government's improved fiscal management over the last 2 years to allocate over Rs. 100 billion for capital expenditure to upgrade infrastructure as well as providing relief to public servants by granting them a minimum salary increase of Rs. 1,250.

Budget has also provided relief to pensioners by increasing the withholding tax threshold to Rs. 25,000 from Rs. 9,000.

The significant reduction in taxation on income and terminal benefits, the increase in the limit for qualifying payments and widening the tax bands are all welcome developments from the perspective of the private sector. The plan to create a safety net for employees is also welcome. The Minister announced several steps aimed at reducing tax evasion and the broadening of the tax net.

The Chamber welcomes these initiatives, in principle as in the Chamber's view, broadening the tax net and increased compliance will, in the medium term, have a beneficial effect by giving the Government the ability to reduce overall tax rates. The Chamber supports in principle the move to rationalize the tax exemptions and simplify the tax administration although care will need to be taken to ensure that industry sectors which are in a development phase received the required support to grow and become stronger.

NCCSL also supports the flat rate of VAT that is proposed as this will simplify the administration and reduce leakage. We believe overall, this will not have an inflationary effect. No. VAT on retail trade.

NCCSL welcomes the proposal to make available Rs. 11 billion for lending to the SME sector at an affordable interest rate. It is hoped that ways will be found to distribute these funds efficiently to this sector.

The Chamber has concerns on two proposals contained in the budget. The drastic reduction of some of the depreciation allowance for capital expenditure.

The Ceylon Chamber of Commerce

realistic plan to take the economy forward

The projected budget deficit of 6.8%, if achieved, will ensure that interest rates and inflation rates will continue to reduce and the value of the rupee will remain stable against the major currencies of the world.

These were the corner stones of the economic development achieved during 2003 and will provide the macro economic conditions for the country to achieve economic growth in a sustainable manner.

The budgetary targets appear to be in line with those set out in the Fiscal Management (Responsibility) Act, which amongst other things, requires the budget deficit to be reduced to 5% and the public debt to 85% of GDP by 2006.

The short term plan set out in the Regaining Sri Lanka document has prioritized the reduction of the budget deficit as the most important goal of the Government after the Peace Initiative. The CCC regards the Budget 2004 as being in close alignment with the Regaining Sri Lanka document. The net domestic borrowing estimated at Rs.65 billion for 2004 compares favourably with Rs.87 billion estimated for 2003 (now revised downwards to Rs.80 billion) and Rs.1,260 billion for 2002. This will result in further market liquidity and the availability of more funds for private sector growth and development. The CCC predicts further downward pressure on interest rates, which the private sector would welcome.

However, as the Minister of Finance pointed out, the total tax revenue as a percentage of GDP had been reducing over the past few years from 18% to 14%. The target is to raise tax revenue to a level comparable with other countries. For this reason, certain revenue enhancement proposals may impose burdens on the private sector, but they will have to be accepted because of the benefits of sound macro economic management and in particular, the reduction in interest and inflation rates would more than offset such burdens. The budget proposals refer to the infrastructure development in roads, power generation, rural telecommunications, water and sanitation.

The ports and airport development was perhaps not referred to because projects in these sectors have already commenced. The CCC views the non-inclusion of the development of railways as a major omission. The CCC is pleased that its proposals on granting tax concessions to employees receiving terminal benefits and to pensioners have been incorporated in the budget. CCC views the Economic Service Charge (ESC) an innovative, novel approach to raising revenue.

It is in line with the CCC proposals to extend the tax net. Government may consider granting business organizations at least three years to start making profits before imposing the levy.

Ceylon National Chamber of Industries

10% duty reduction could prove counter productive

by Steve A. morrell.

The Budget 2004 has provoked comment from many. Some supportive, while simultaneously there have also been divergent views., Chairman Ceylon chamber of Industries Ranjith Hettiaratchy talking to the Daily News commented that although greater segments of the Budget were economically progressive, there were areas for conjecture.

Pre-Budget Proposals submitted by the Chamber, were in large part excluded, or, not given support within the intended context. His contention was that reduction in import Duty to 10 % did not ensure intended benefits. His point was that the imposition of 10% duty would not have its intended impact because finished products using imported raw materials would in any case be exposed to duty at point of export. This he said was more negative than positive and in consequence negate intended benefits.

The Daily News conducted an analytical discussion on the Budget proposals which covered a broad spectrum of impact points immediately the Minister of finance concluded his speech. At this forum outstanding issues were discussed. Additionally, Hettiaratchy further commented, that the Voluntary Retirement Scheme would prove to be counter productive. His contention was that this would expose the government to en block retirement where applicable, and the fall - out, would be an exodus of the skilled work force who would leave to benefit an alternate employer.

He said that caution in its implementation would be a more plausible approach, which in the long run would ensure that skills are retained, and those who opt for this alternative would be in an extreme category of seniority in service who would gain the maximum in intended benefits.

He said it was point for record that financial discipline was maintained over the past two years which facilitated the benefits this budget intended .

The exchange Service Tax was another area which would need some modification. Apart from this statement he did not wish to make further comment because the concerns of the chamber, although not fully considered, were in cognizance with the generality of the proposals.

The salaries issue of government servants, was lauded by all. He said. This was a long standing issue at long last considered for positive action. More importantly, the Armed Forces and the Police too were to be included This was move in the right direction.

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